‘Black Monday’: Could It Happen Again?

Published 10:10 AM ET Thu, 8 Nov 2012

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Twenty-five years after "Black Monday" — when the U.S. stock market went into a free fall and the Dow Jones Industrial Average lost 22.6 percent in a single trading session — some market experts believe we could still see a repeat of the worst one-day plunge in history.

"In one sense, it could happen again," David Blitzer, managing director and chairman of the S&P 500 committee at Standard and Poor's, told CNBC on Friday. "We could get to a point where everybody decided that the world was incredibly over-valued and the only thing to do was to sell," he said.

He added: "We do have circuit-breakers and in theory they would work very well, but the human psychology that was around in 1987 is still around today and that is that everybody can suddenly change their mind and the result can be a massive crash."

Blitzer noted that in 1987, when trading predominantly happened on the floor of a particular exchange, human fallibility was a threat — and it still is.

"We weren't safe from the human element then and I don't think we're safe from it now," he said.

Although global stock markets and trading have become highly technical and computerized over the last 25 years, the absence of the human element has not meant that glitches have become rare.

Indeed, high-frequency trading, which uses software to post trades in microseconds, has been blamed for a number of high-profile glitches on global stock markets over recent months, the most infamous example being the so-called "flash crash" of May 2010 when the Dow industrials plunged 9 percent and recovered minutes later.

"The vulnerability is different now," Blitzer said. "We had the 'flash crash' where everything went down and came back up again. So things can happen much more quickly than they used to. … I think the danger is still there."

He added: "What we've really learned in the last five years is that just about anything can happen again. We didn't expect a recession like the Great Recession, we didn't expect to see a financial crisis, but we got them."

—By CNBC's Holly Ellyatt

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